Order in Council

At Wellington this 27th day of July 2015

Present:His Excellency the Governor-General in Council

Pursuant to section 138(1) of the Credit Contracts and Consumer Finance Act 2003, His Excellency the Governor-General, acting on the advice and with the consent of the Executive Council and on the recommendation of the Minister of Commerce and Consumer Affairs made in accordance with section 138(1A) of that Act, makes the following regulations.

Regulation 4 inserts new regulation 18A into the principal regulations. New regulation 18A gives an exemption from section 99B of the Credit Contracts and Consumer Finance Act 2003 (the Act) for certain credit contracts. Section 99B provides that if a creditor who is required to be registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the FSP Act) is not registered, neither the creditor nor any other person may, in relation to a credit contract to which the creditor is a party, enforce any right in relation to the costs of borrowing.

The exemption does not apply to any consumer credit contracts. The exemption applies only if—

the debtor is a body corporate, the Crown, a Crown entity, or a local authority; and

the credit contract involves 2 or more creditors.

The exemption may apply, for example, to—

a credit contract provided under a syndicated loan arrangement (being a loan provided by a group of lenders who work together to provide funds for a particular debtor):

a credit contract that is provided under an offer of debt securities that is a regulated offer under the Financial Markets Conduct Act 2013 or an offer made to wholesale investors.

The exemption does not affect a creditor’s obligations under the FSP Act to be registered under that Act.

Regulation 5 and the Schedule replace the 2 model disclosure statements in the principal regulations in order to correct the descriptions in those statements relating to a debtor’s obligations if a debtor cancels a credit contract. These regulations replace the rest of the model disclosure statements only for publication reasons.

Statement of reasons

The following statement of reasons is published for the purposes of section 138(1B) of the Credit Contracts and Consumer Finance Act 2003.

The Minister of Commerce and Consumer Affairs, having had regard to the purposes of the Credit Contracts and Consumer Finance Act 2003 set out in section 3 of that Act as required by section 138(1A)﻿(a) of that Act, and being satisfied as to the matters set out in section 138(1A)﻿(b) and (c)﻿(ii) of that Act, considers the exemption given by new regulation 18A to be appropriate because—

section 99B of the Act creates unduly onerous and burdensome obligations for creditors that are parties to an exempted credit contract to ensure that every other creditor party to that contract has complied with the requirement to register under the FSP Act; and

the debtors under exempted credit contracts are relatively sophisticated borrowers that do not need the protections of the Act. The exemption will provide a benefit (rather than detriment) to these debtors by maintaining their access to debt funding from, for example, syndicated loans and the debt capital markets; and

the exemption does not apply to consumer credit contracts, and the exemption will therefore not affect the interests of consumers; and

while section 99B of the Act was primarily intended to address failures to register under the FSP Act by third tier lenders that provide credit to consumers, its application to wholesale credit markets for business or investment lending may create significant uncertainty about the enforceability of interest payments. This may act as a disincentive to lending by international financial institutions into New Zealand and harm the efficiency of markets for credit; and

in light of the above, the purposes of the Act to protect the interests of consumers, to promote confident and informed participation of consumers in markets for credit, and to promote fair, efficient, and transparent markets for credit will continue to be met.